UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1996
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________________ to _______________________
Commission File Number 0-12944
Zygo Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0864500
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Laurel Brook Road, Middlefield, Connecticut 06455
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(860) 347-8506
- -------------------------------------------------------------------------------
Registrant's telephone number, including area code
N/A
- -----------------------------------------------------
(Former name, former address, and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
10,436,990 Common Stock, $.10 Par Value, at January 31, 1997, adjusted for
stock split
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Company or group of companies for which report is filed: Zygo Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share amounts)
For the Three Months For the Six Months
Ended December 31,(1) Ended December 31,(1)
--------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- -------
Net sales $20,810 $13,479 $39,253 $25,310
Cost of goods sold 10,747 7,531 20,957 14,260
------- ------- ------- -------
Gross profit 10,063 5,948 18,296 11,050
Selling, general and administrative
expenses 3,292 2,268 6,074 4,456
Research, development and engineering expenses 1,859 1,320 3,239 2,746
Nonrecurring acquisition-related charges -- -- 11,083 --
Amortization of goodwill 145 -- 231 --
------- ------- ------- -------
Operating profit (loss) 4,767 2,360 (2,331) 3,848
------- ------- ------- -------
Other income (expense):
Interest income 156 144 543 246
Miscellaneous (expense), net (50) (89) (77) (130)
------- ------- ------- -------
106 55 466 116
------- ------- ------- -------
Earnings (loss) before income taxes 4,873 2,415 (1,865) 3,964
Income tax expense 1,774 876 2,980 1,464
------- ------- ------- -------
Net earnings (loss) $ 3,099 $ 1,539 $(4,845) $ 2,500
======= ======= ======= =======
Net earnings (loss) per share (2) $ 0.26 $ 0.15 $ (0.47)(3) $ 0.25
======= ======= ======= =======
Weighted average common shares and common
dilutive equivalents outstanding (2) 11,976 10,258 10,333 (3) 10,050
======= ======= ======= =======
(1) All periods include the results of NexStar Automation, Inc. which is being
accounted for as a pooling-of-interests. The results of Technical
Instruments Company are included in the consolidated results of the Company
from August 8, 1996 when the acquisition was effective, since it was
accounted for as a purchase.
(2) Restated to reflect the 2-for-1 stock split effected in the form of a 100%
stock dividend declared on January 23, 1997 and payable on February 27,
1997 to shareholders of record on February 3, 1997.
(3) As per generally accepted accounting principles, the computation of the net
loss per share is based on the weighted average common shares outstanding
without common dilutive equivalents.
-2-
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and June 30, 1996
(Thousands, except share amounts)
December 31, June 30,
ASSETS 1996(1) 1996(1)
- ------ ------- --------
Current Assets:
Cash and cash equivalents $ 5,081 $ 18,449
Marketable securities 14,013 20,035
Receivables 15,244 10,627
Inventories:
Raw materials and manufactured parts 8,241 3,126
Work in process 4,419 3,558
Finished goods 829 478
------- -------
Total inventories 13,489 7,162
------- -------
Prepaid expenses and taxes 665 233
Deferred income taxes 2,188 1,506
Costs in excess of billings 877 252
------- -------
Total current assets 51,557 58,264
------- -------
Property, plant and equipment, at cost 19,705 17,988
Less accumulated depreciation (12,177) (11,476)
------- -------
Net property, plant and equipment 7,528 6,512
------- -------
Goodwill and other intangible assets 8,163 600
Other assets, net 1,078 519
------- -------
Total assets $68,326 $65,895
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 4,512 $ 4,302
Accrued expenses and customer progress
payments 6,575 5,570
Federal and state income taxes 706 1,244
------- -------
Total current liabilities 11,793 11,116
------- -------
Deferred income taxes 3,291 692
Stockholders' Equity:
Common stock $.10 par value per share:
15,000,000 shares authorized; 10,644,590
shares issued (10,337,972 at June 30, 1996)(2) 1,064 517
Additional paid-in capital 38,768 34,846
Retained earnings 13,690 19,060
Net unrealized gain (loss) on marketable securities 21 (35)
------- -------
53,543 54,388
Less treasury stock, at cost; 207,600 shares (2) 301 301
------- -------
Total stockholders' equity 53,242 54,087
------- -------
Total liabilities and stockholders' equity $68,326 $65,895
======= =======
(1) All periods include the results of NexStar Automation, Inc. which is being
accounted for as a pooling-of-interests. The results of Technical
Instruments Company are included in the consolidated results of the Company
from August 8, 1996 when the acquisition was effective, since it was
accounted for as a purchase.
(2) Restated to reflect the 2-for-1 stock split effected in the form of a 100%
stock dividend declared on January 23, 1997 and payable on February 27,
1997 to shareholders of record on February 3, 1997.
-3-
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months ended December 31, 1996, and 1995
(Thousands of dollars)
1996(1) 1995(1)
------- -------
Cash provided by (used for) operating activities:
Net (loss) earnings $(4,845) $ 2,500
Adjustments to reconcile net (loss) earnings to cash
provided by (used for) operating activities:
Depreciation and amortization 1,152 702
Deferred income taxes 726 (63)
Loss on disposal of assets 141 98
Nonrecurring acquisition-related costs 10,084 --
Gain on sale of marketable securities (50) --
Intangible and other assets 386 --
Changes in operating accounts
Receivables (2,628) 459
Costs in excess of billings (625) (79)
Inventories (2,594) (789)
Prepaid expenses (56) (122)
Accounts payable and accrued expenses (4,677) 141
------ -------
Net cash (used for) provided by operating activities (2,986) 2,847
------ -------
Cash provided by (used for) investing activities:
Additions to property, plant and equipment (2,062) (1,210)
Investment in marketable securities (1,605) (400)
Investment in other assets (188) (95)
Acquisition of business (11,786) --
Proceeds from sale of marketable securities 4,848 --
Proceeds from maturity of marketable securities 2,845 1,160
Proceeds from sale of assets 17 4
------- -------
Net cash used for investing activities (7,931) (541)
------- -------
Cash provided by (used for) financing activities:
Repayment of long-term debt (2,662) --
Net proceeds from issuance of common stock -- 22,826
Exercise of employee stock options 211 23
------- -------
Net cash (used for) provided by financing activities (2,451) 22,849
------- -------
Net (decrease) increase in cash and cash equivalents (13,368) 25,155
Cash and cash equivalents, beginning of period 18,449 2,647
------- -------
Cash and cash equivalents, end of period $ 5,081 $27,802
======= =======
(1) All periods include the results of NexStar Automation, Inc. which is being
accounted for as a pooling-of-interests. The results of Technical
Instruments Company are included in the consolidated results of the Company
from August 8, 1996 when the acquisition was effective, since it was
accounted for as a purchase.
The interim financial statements furnished herein reflect all adjustments which
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods presented. All such adjustments are of a normal and
recurring nature. The results for the quarter ended December 31, 1996 are not
necessarily indicative of the results to be expected for the entire fiscal year.
These interim financial statements should be read in conjunction with the
consolidated financial statements and notes included in the Company's June 30,
1996 Annual Report on Form 10-K including items incorporated by reference
herein.
-4-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Zygo Corporation ("Zygo" or "the Company") designs, develops, manufactures, and
markets high performance noncontact electro-optical measuring instruments,
systems and accessories, and optical components to precise tolerances both for
sale and for use as key elements in its own products. Utilizing proprietary
laser and optical technology combined with advanced software and electronics,
Zygo's precision noncontact measuring instruments and systems enable
manufacturers in a variety of industries, including data storage, semiconductor,
and precision optics, to increase operating efficiencies and production yields
by identifying and collecting quantitative data on product defects, both during
and after the manufacturing process. Zygo's optical components are used in many
applications, including laser fusion research, semiconductor manufacturing
equipment, and aerospace optical systems, as well as being an integral part of
precision optical instruments.
Through the acquisition of Technical Instrument Company ("TIC"), effective
August 8, 1996, Zygo has substantially broadened its product offering. TIC,
located in Sunnyvale, California, designs, develops, manufactures, markets, and
sells microscopy systems and subsystems, or modules to a variety of industries,
including manufacturers of photomasks used in semiconductor and flat panel
display manufacturing, manufacturers of components for the data storage
industry, biomedical research, and other high technology manufacturing and
research applications. The majority of TIC's microscope systems and subsystems
employ white light confocal scanning optical microscopy ("CSOM") technology.
Over the past several years, TIC has added other imaging systems to its product
offering, including laser scanning confocal and atomic force microscopy. Today
TIC specializes in integrating imaging modes, viewing accessories, and
measurement tools within its microscopy systems and subsystems for customers in
a wide variety of high technology fields.
During the quarter ended September 30, 1996, Zygo also completed the acquisition
of NexStar Automation, Inc. ("NexStar"), effective September 12, 1996. NexStar
designs, develops, manufactures, and markets comprehensive automated system
solutions to enable manufacturers in a variety of industries, including the data
storage, semiconductor, and medical disposables industries, to enhance
operational efficiencies and product yields. NexStar's high speed production
solutions reduce downtimes, especially in manufacturing processes adaptable to
the manufacture of multiple products differing in size, features, and
functionality. NexStar's automated solutions integrate its own proprietary
mechanical components and applications software with nonproprietary mechanical,
software, and robotics subsystems produced by third parties. NexStar's automated
solutions also enhance production control to ensure consistent high quality.
NexStar's sophisticated automation products and equipment are utilized in many
applications, including data storage media manufacturing, disk drive assembly,
semiconductor manufacturing, and packaging and assembly applications in medical
disposables production.
As a result of the completion of the acquisitions of TIC and NexStar, Zygo is
now better positioned to provide its high technology customers with fully
automated solutions to their test and measurement requirements. The Company is
integrating the activities of all of its operations and will focus on providing
both standalone systems and components as well as fully integrated systems to
its customers in the data storage, semiconductor, and other high technology
industries.
-5-
Results of Operations
- ---------------------
Net sales of $20,810,000 for the three months and $39,253,000 for the six months
ended December 31, 1996, increased by $7,331,000 or 54% and $13,943,000 or 55%,
respectively, from the net sales in the comparable prior year periods. Net sales
of the Company's instruments and systems increased by 84% to $15,756,000 and net
sales of modules and components increased by 3% to 5,054,000 in the second
quarter of fiscal 1997, each from the comparable quarter in fiscal 1996. Net
sales of the Company's instruments and systems and net sales of modules and
components increased by $12,623,000 or 76% and $1,320,000 or 15%, respectively,
for the six months ended December 31, 1996 as compared to the six-month period
ended December 31, 1995. The increases in net sales of 54% and 55%,
respectively, in the quarter and six months ended December 31, 1996 resulted
from increased demand for the Company's instruments and systems by customers in
the data storage, semiconductor, and optical manufacturing markets and were
partially attributed to the addition of TIC. On a pro forma basis, including TIC
in both the three- and six-month periods of fiscal 1997 and 1996, the increase
in net sales in the second quarter of fiscal 1997 amounted to $4,620,000 or 29%
compared to the second quarter of fiscal 1996 and the increase in the first half
of fiscal 1997 amounted to $9,995,000 or 34% compared to the first half of
fiscal 1996.
Gross profit for the three months and six months ended December 31, 1996,
amounted to $10,063,000 and $18,296,000, respectively, an increase of $4,115,000
and $7,246,000 from the comparable prior year periods. Gross profit as a
percentage of sales for the quarter and six months ended December 31, 1996,
amounted to 48.4% and 46.6%, respectively, an increase of 4.3 and 2.9 percentage
points, respectively, from gross profit as a percentage of sales of 44.1% and
43.7%, respectively, for the three months and six months ended December 31,
1995. Gross profit dollars and gross profit as a percentage of sales increased
principally due to the increased volume of systems and optical components and
resulting manufacturing efficiencies as well as improved margins on systems due
to product mix.
Selling, general and administrative expenses of $3,292,000 and $6,074,000,
respectively, in the three months and six months ended December 31, 1996,
increased by $1,024,000 or 45%, and $1,618,000, or 36%, respectively, from the
same periods the year earlier. The increases in the three-month and six-month
periods ended December 31, 1996, were primarily due to the impact of including
TIC from August 8, 1996, increased spending on selling and service
infrastructure, and volume-related expenses, such as commissions paid to the
Company's direct sales personnel and external sales agents. As a percentage of
sales, selling, general and administrative expenses declined in the three months
and six months ended December 31, 1996, to 15.8% and 15.5%, respectively, as
compared to 16.8% and 17.6%, respectively, in the comparable prior year period.
Research, development, and engineering expenses ("R&D") amounted to $1,859,000
or 8.9% of sales and $3,239,000 or 8.3% of sales, respectively, for the three
months and six months ended December 31, 1996. In the comparable three- and
six-month periods in the prior year, R&D expenses totaled $1,320,000 or 9.8% of
sales and $2,746,000 or 10.8% of sales, respectively. The increases in R&D
expenses were essentially due to the impact of including TIC from August 8,
1996.
-6-
The Company recorded nonrecurring acquisition-related charges in the amount of
$11,083,400 in the three months ended September 30, 1996. The nonrecurring
charges related to approximately $999,400 of expenses incurred to complete the
Company's acquisition of NexStar and the write-off of approximately $10,084,000
of in-process research and development costs in conjunction with the Company's
acquisition of TIC.
Operating profit in the three months ended December 31, 1996 amounted to
$4,767,000, an increase of $2,407,000 or 102% from the $2,360,000 of operating
profit in the comparable prior year period. Excluding the nonrecurring charges,
the Company's operating profit in the six months ended December 31, 1996 was
$8,752,000, an increase of $4,904,000 or 127% from the $3,848,000 of operating
profit in the six months ended December 31, 1995. The Company reported an
operating loss, including the nonrecurring charges, of $2,331,000 for the six
months ended December 31, 1996.
Income tax expense in the three months ended December 31, 1996 totaled
$1,774,000 as compared to $876,000 in the comparable prior period. The Company
recorded $2,980,000 of income tax expense in the six months ended December 31,
1996 despite a loss before taxes of $1,865,000 as a result of the non-tax
deductible nature of the $10,084,000 of in-process research and development
charge to earnings in the quarter ended September 30, 1996.
Net earnings totaled $3,099,000 in the three-month period ended December 31,
1996, an increase of $1,560,000 or 101% from the $1,539,000 reported in the
three-month period ended December 31, 1995. The Company reported per share
earnings of $.26 in the quarter ended December 31, 1996, an increase of 73% over
the per share earnings of $.15 in the comparable quarter in the prior year, both
periods adjusted for the 2-for-1 stock split to be effected in February 1997.
Excluding nonrecurring charges, net income for the first half of fiscal 1997
totaled $6,238,000, an increase of $3,738,000 or 150% from the first half of
fiscal 1996. Earnings per share adjusted for the 2-for-1 stock split, excluding
the nonrecurring charges, were $.52, up 108% from $.25 in the first half of
fiscal 1996 despite a 19% increase in shares outstanding. The Company reported a
net loss, including the nonrecurring charges, of $4,845,000 or ($.47) per share
for the first half of fiscal 1997, adjusted for the stock split.
Financial Condition
- -------------------
At December 31, 1996, the Company had cash and cash equivalents of $5,081,000
and marketable securities of $14,013,000 for a total of $19,094,000, an increase
of $1,188,000 from September 30, 1996. Working capital at December 31, 1996 was
$39,764,000, an increase of $3,651,000 or 10% from September 30, 1996 and a
decrease of $7,384,000 from June 30, 1996. The increase in working capital in
the quarter was principally due to increases in the levels of net inventory,
accounts receivable, and cash. When compared to June 30, 1996, the decline in
working capital was principally a result of the decline in cash and cash
equivalents due to the acquisition of TIC, which included the payment of
$11,700,000 for the cash portion of the purchase price plus the subsequent
payment of approximately $2,662,000 of indebtedness of TIC. As of December 31,
1996, there were no borrowings outstanding under the Company's $3,000,000 bank
line of credit. Unused amounts under the line of credit are available for
short-term working capital needs.
-7-
The Company's backlog at December 31, 1996 totaled a record of $28,980,000, an
increase of $11,610,000 or 67% over the $17,370,000 backlog at December 31,
1995, and an increase of $3,792,000 or 15% from the backlog at September 30,
1996. Orders from the semiconductor industry, in particular the mask sector, and
orders from the data storage industry, in particular microscope systems,
automation systems, and flying height testers, remained higher when compared to
the comparable prior year period. On a pro forma basis, including TIC at
December 31, 1996 and 1995, the Company's backlog at December 31, 1996 increased
$6,958,000 or 32% from the year earlier.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on November 14, 1996. The following
matters were submitted to a vote of the Company's stockholders:
Proposal No. 1--Election of Board of Directors
To elect nine directors for the ensuing year. The following
individuals, all of whom were Company directors immediately prior to
the vote, were elected as a result of the following vote:
For Against
--------- -------
Michael R. Corboy 4,510,070 93,309
Paul F. Forman 4,509,892 93,487
Seymour E. Liebman 4,510,220 93,159
Robert G. McKelvey 4,510,870 92,509
Paul W. Murrill 4,511,020 92,359
John R. Rockwell 4,510,217 93,162
Robert B. Taylor 4,511,015 92,364
Gary K. Willis 4,510,092 93,287
Carl A. Zanoni 4,510,092 93,287
Proposal No. 2--Adoption of an amendment to the Company's Amended and
Restated Non-Qualified Stock Option Plan
To adopt an amendment to the Company's Amended and Restated
Non-Qualified Stock Option Plan to extend the termination date from
September 3, 1997 to September 3, 2002. The amendment to the Company's
Amended and Restated Non-Qualified Stock Option Plan was adopted, as
written in the proxy statement dated October 8, 1996, as a result of
the following vote:
Votes For 3,852,953
Votes Against 626,057
Broker Non-Votes 112,531
Abstentions 11,838
-8-
There were no other matters submitted to a vote of the Company's
stockholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule.
(b) 1. On January 31, 1997, the Company filed a Current Report on Form 8-K,
dated January 23, 1997, reporting the declaration of a 2-for-1 stock
split effected in the form of a 100% stock dividend. [Item 5 reporting]
-9-
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Zygo Corporation
------------------------------------------
(Registrant)
/s/ GARY K. WILLIS
-------------------------------------------
Gary K. Willis
President and Chief Executive Officer
/s/ MARK J. BONNEY
-------------------------------------------
Mark J. Bonney
Vice President, Finance and Administration,
Treasurer, and Chief Financial Officer
Date: February 13, 1997
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
27 Financial Data Schedule for the quarterly report on
Form 10-Q for the period ended December 31, 1996.